What is an OFS?
A shareholder who already owns shares in a listed company sells some of them through a separate window the exchange opens for a day or two, at a floor price the seller sets. No new shares are created and the company receives nothing — the money goes to whoever is selling. The window is an order-collection system rather than an ordinary market: inside it you can only buy, not sell.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, para 19.1.5.6.1
Who is allowed to sell through an OFS?
Two separate routes, and they are often wrongly described as one. A promoter of a company that has to raise its public shareholding to the required minimum may use an OFS with no size-of-company test at all. Separately, in any company whose average daily market capitalisation over the six months before the offer month is ₹1,000 crore or more, any promoter, promoter-group entity or non-promoter shareholder may sell. The old rule that a non-promoter seller had to hold at least 10% of the company was dropped in January 2023, and the older "top 200 companies" test went in December 2018 — both are still repeated in places.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.2.2.1 and 19.1.2.2.2
Who sets the floor price, and when is it announced?
The seller sets it — not the company, and not SEBI, which prescribes no formula. It has to reach the exchange by 5pm on the day before bidding opens, extendable to 6pm only if the exchange grants it on recorded reasons, and the exchange must put it to the market immediately. So an offer announced today is usually priced this evening. Anything telling you the floor comes two days ahead, or arrives in a sealed envelope opened after the offer closes, is describing a framework that no longer exists.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, para 19.1.5.3.1
Why are there two days, and which one is mine?
On the first day — T day — only non-retail investors may bid. Retail investors bid on the second day, T+1. If a category is left undersubscribed its unsold portion moves across to the other, and unallotted non-retail bidders may carry their bids into the second day and revise them.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.5.5.2, 19.1.5.5.3 and 19.1.5.6.5(i)
Who counts as a retail investor here?
An individual whose bids total no more than ₹2 lakh, added up across both exchanges. Cross that ceiling in the retail category and the bids are rejected outright rather than scaled down. An individual may instead bid in the general category on the first day, but doing so gives up the retail reservation and any retail discount.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.7.2 and 19.1.5.6.2
How much is reserved for retail?
At least 10% of the offer. This is frequently confused with the separate reservation of at least 25% for mutual funds and insurance companies — two different reservations for two different sets of buyers.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.7.2 and 19.1.7.1
Is there a discount for retail investors?
There may be. A discount is optional, it is offered only to retail investors, and it has to be stated in the offer notice up front. One consequence surprises people: where a discount is given, the final price a retail investor pays can end up below the floor price.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.5.4.1 and 19.1.5.4.2(c)
What happens if I bid below the floor price?
The bid is rejected — not merely left unallotted. On the second day the same applies to a retail bid below whichever is relevant: the cut-off price the non-retail category settled at, or the floor price if that category was undersubscribed.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.5.6.13 and 19.1.5.6.5(f)
How are shares allotted?
The seller picks the method and states it in the notice: either price priority, where the highest bids are filled first and different bidders pay different prices, or proportionate allotment at a single clearing price. The cut-off price is the lowest price at which the whole offer sells, and it is worked out separately for the retail and non-retail categories. Retail investors must be given the option of bidding at cut-off rather than naming a price; non-retail bidders may only place limit orders. No single bidder other than a mutual fund or an insurance company may be allotted more than a quarter of the offer.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.7.3, 19.1.5.6.5, 19.1.5.6.11 and 19.1.7.10
How much money do I need up front?
Retail bids need the full order value up front, in cash or cash equivalents. For a bid at cut-off, the margin is worked out at the first day’s cut-off price. Institutional investors are the exception: they may choose to put up nothing, and in exchange give up the ability to modify or cancel — they may only revise a bid upwards.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.6.1, 19.1.6.2, 19.1.5.6.5(e) and 19.1.5.6.1
What happens to the money if I get nothing?
Funds from bidders who are not allotted shares are released once the settlement obligation has been downloaded. Settlement of the offer is on a trade-for-trade basis, so the shares cannot be squared off intraday.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.8.4 and 19.1.8.2
Is an OFS covered by the settlement guarantee?
No, and this is a genuine difference from an ordinary market trade that is worth knowing before you bid: the Settlement Guarantee Fund is not available for OFS. Failing to pay in also costs 10% of the order value as a penalty, which goes to the exchange’s Investor Protection Fund.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, paras 19.1.9.6 and 19.1.9.1
Does the stock’s daily price band apply inside the window?
No. The price band that limits how far the share can move in the ordinary market does not apply to bidding in the OFS window.
Source: SEBI Master Circular for Stock Exchanges and Clearing Corporations, 30 Dec 2024, Ch. 1, para 19.1.5.6.9
Why does the government use OFS to sell PSU stakes?
Because it is the route built for exactly this: a large existing holder selling a block of an already listed company, quickly and on the exchange, without the company issuing anything. In a government disinvestment the seller named in the notice is the President of India acting through the relevant ministry, which is a useful reminder that the seller and the company are not the same party.
Source: Exchange OFS notices; the framework itself does not use the word disinvestment
